What is the purpose of accretion/dilution analysis?

• A. To project the impact of an acquisition on the acquirer's EPS and compare pro forma EPS to standalone EPS.
• B. To evaluate the tax implications of the transaction only.
• C. To determine the optimal debt level for financing the transaction.
• D. To calculate the purchase price allocation.

Answer: (A)

Accretion/dilution analysis focuses on how an acquisition will affect the acquirer's earnings per share on a per-share basis after the deal closes. The core goal is to build a pro forma model of the combined company and compare that pro forma EPS to the acquirer's standalone EPS. If the pro forma EPS ends up higher, the deal is accretive; if lower, it’s dilutive. This analysis captures how financing choices (cash versus debt versus equity), the interest burden from new debt, any incremental shares issued, and expected synergies or cost savings will translate into per-share earnings. It provides a clear, comparable metric for evaluating whether the transaction improves shareholder value on an immediate earnings basis, beyond just the total value of the deal.

Other options miss the main point: tax implications and financing structure are factors that influence accretion/dilution but aren’t the primary purpose of the analysis itself; purchase price allocation is an accounting exercise separate from assessing per-share earnings impact.